Microsoft cuts 4,800 across Xbox, sales divisions, redeploys hundreds more

Microsoft is laying off 605 Washington-based employees, part of companywide cuts, as it continues to cull its workforce amid a yearslong artificial-intelligence spending boom.

The Redmond-based tech giant told employees Monday morning that it would cut roles across the Xbox gaming division as well as sales teams, resulting in about 4,800 layoffs.

In Washington, 493 Redmond-based employees were let go along with an additional 112 remote workers, according to a state regulatory filing.

Decisions like these are never easy, and you have my commitment that we are constantly looking for ways to reduce the need for job eliminations," Microsoft Chief People Officer Amy Coleman wrote in a companywide memo on Monday. "Whenever possible, our priority is to place people into new roles aligned to the company's highest priorities and greatest areas of opportunity."

Coleman also said the employees laid off Monday will not be replaced by AI, in a sharp rebuke to the idea that the technology was causing the job losses rattling the tech industry. Rather, AI is changing the way work is done at Microsoft and radically shifting the roles within the company.

"We all need to keep learning, keep building new skills, and keep adapting as the work evolves," Coleman said. "Our customers are navigating this same shift, and they're counting on us to help them through it."

After a summer of cuts last year, during which the company let go of 15,000 employees globally and 3,200 in Redmond, Microsoft had held off on sweeping layoffs this year.

In a bid to manage its head count more creatively, the company opted for an unprecedented voluntary retirement program last month. Microsoft offered the buyouts to 8,750 eligible employees, about 30% of whom took the offer.

Microsoft's total workforce number isn't cratering, despite multiple rounds of layoffs over the last 14 months. Over the past year, Microsoft has hired about 3,600 employees in Redmond.

"Despite these changes, our overall presence in Washington state remains stable at 52,000 employees," Microsoft President Brad Smith told The Seattle Times.

While Microsoft conducts layoffs and buyouts in an effort to keep a ceiling on its head count amid the AI race, it's also doing so to cut down on costs as AI-related investments balloon. The company said it likely spent more than $140 billion on capital expenditures during its 2026 fiscal year, which ended on June 30.

But it's not all AI-related costs that are driving cuts at the company. Xbox was hit particularly hard Monday as the ailing gaming division went through a major restructuring that will last through the fiscal year, which began on July 1.

"Our business today is not healthy," Xbox CEO Asha Sharma wrote Monday in a separate memo to Xbox employees.

In Monday's layoffs, about 1,600 of the roles were in the gaming division, which plans to reduce its head count by 3,200 throughout the 2027 fiscal year.

Microsoft will also spin off four video game studios within Xbox, moves that ultimately lowered the total number of projected cuts. A fifth studio is in talks to exit Microsoft as well.

Sharma said the division's problems stem from "the most severe hardware crisis" in the company's history, as AI development ramps up the cost of hardware. The company also spent the past decade betting on growth through a broad portfolio of content, which Sharma said hasn't delivered enough value.

"I recognize that a yearlong restructuring creates additional challenges," Sharma said. "Unfortunately, it is not possible to make all the necessary changes in a single day, and I want to be direct about the scale."

The company is working to redeploy its workforce, a strategy that Coleman, Microsoft's head of human resources, has been focused on since she took over the role about a year ago. As Microsoft and the rest of the industry goes through what it calls a platform shift with the development of AI, the company is moving employees who might have been at risk of losing their jobs into new ones.

Coleman said the company learned from last summer, when employees felt blindsided by mass layoffs and the changing culture of Microsoft amid the AI race.

Redeployments or not, Smith and Coleman framed some job cuts conducted by the company as inevitable. But the number of projected cuts over the past week ticked down as employees were redeployed elsewhere at Microsoft.

Smith said the company has redeployed about 600 Redmond-based employees into new jobs over the past year.

"We'll continue to focus on redeployments," Smith said. "We're acutely sensitive to the important role that Microsoft plays in the region.

Monday's cuts affected about 2.1% of Microsoft's 220,000-person workforce.

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This story was originally published July 6, 2026 at 9:36 AM.